Banks lead Europe shares to 17-month closing high

By Brian Gorman

LONDON (BestGrowthStock) – European shares hit a 17-month closing high on Wednesday, with banks, miners and energy stocks gaining from the U.S. Federal Reserve’s pledge to keep interest rates near zero for an extended period.

The pan-European FTSEurofirst 300 index of top shares rose 0.9 percent to 1,070.90 points, its highest close since early October 2008.

The European benchmark is up more than 65 percent from its lifetime low of March 9, 2009.

European stock markets will end 2010 higher, according to Reuters polls.

The VDAX-NEW volatility index, a measure of investor risk appetite, fell 2.2 percent. The lower the index, which is based on sell and buy options on Frankfurt’s top-30 stocks, the higher the market’s desire to take risk. The US volatility index fell 6.4 percent.

“This rally, which we still consider to be a bear market rally, has gone quite a bit further than we thought,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

“But as long as liquidity remains, there’s no saying where it might end. Investors with cash don’t have much alternative to equities, with interest rates so low.”

“Governments and central banks have put massive fiscal and monetary stimulus into the system. The big question for this year is what happens when they withdraw it,” he added.

Banks were among the biggest gainers, with Banco Santander, Credit Suisse, Societe Generale and Standard Chartered up between 0.8 and 2.2 percent.

Heavyweight HSBC rose 1.4 percent, even as it traded ex-dividend.

Italy’s biggest bank UniCredit rose 5.9 percent after it beat forecasts for 2009 net profit and resumed paying cash dividends.

Irish banks enjoyed a St. Patrick’s day rally, on hopes the Dublin government may soon announce further bailout measures. Allied Irish Banks and Bank of Ireland gained 6.9 and 6.3 percent, respectively.

In its comments on Tuesday, the Fed sounded more upbeat about the job market and said inflation was likely to remain subdued.

The Fed’s view on low inflation was backed up by data on Wednesday showing that U.S. producer prices in February posted their biggest fall in seven months as energy costs tumbled.

Across Europe, Britain’s FTSE 100 ended the day 0.4 percent higher; Germany’s DAX and France’s CAC 40 rose 0.9 and 0.5 percent respectively.

Wall Street was higher around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were up between 0.4 and 0.6 percent. The Dow hit a 17-month intraday high, an important technical indicator.

COMMODITIES RISE AS DOLLAR WEAKENS

Mining firms rose, underpinned by stronger metals prices as the Fed’s pledge on low rates pressured the dollar.

Anglo American, BHP Billiton, Fresnillo, Kazakhmys, Lonmin, Rio Tinto, Vedanta and Xstrata rose between 1.5 and 3.4 percent.

A rally in crude prices, which rose above $82 a barrel, helped spur a rise in energy shares. OPEC ministers have agreed to leave oil output targets unchanged, an OPEC delegate told Reuters at a production meeting in Vienna.

BP, Royal Dutch Shell and Total added between 0.5 and 2.1 percent.

Among individual movers, Europe’s biggest clothing retailer Inditex gained 3.5 percent after it showed strong sales growth in the first six weeks of the new year.

UK transport company Arriva rose 16.8 percent after confirming that it has received an unsolicited approach from a third party about a bid for the company after takeover rumors for the firm circulated on Tuesday.

Siemens rose 3.2 percent, after source-based news reports said it will cut at least 1,000 jobs in its SIS information technology business ahead of a spinoff.

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(Editing by Louise Heavens)

Banks lead Europe shares to 17-month closing high